Debt Financing in Business

These flashcards cover key vocabulary terms related to debt financing, loans, and financial management based on the lecture notes provided.

Debt

An unpaid monetary obligation to a creditor.

Debt financing

Financing through borrowed funds, such as loans and bonds.

Loan

A liability expressed in a loan agreement where the lender agrees to provide funds to the borrower.

Equity capital

Ownership interest in a company, typically in the form of stocks or shares.

Cash flow (CF)

The net amount of cash being transferred in and out of a business.

Creditworthiness

The ability of a borrower to repay a loan, assessed by the lender.

Debt policy

Guidelines established to manage the borrowing and repayment of debts.

Loan agreement

A contract between the borrower and lender detailing loan terms and conditions.

Interest rate

The percentage charged on a loan expressed as a portion of the total outstanding amount.

Liquidity

The availability of liquid assets to a company and its ability to meet short-term obligations.

Solvency

The ability of a company to meet its long-term financial obligations.

Debt-to-equity ratio

A financial ratio indicating the relative proportion of company's debt to shareholders' equity.

Operational cycle

The average period between the capital being invested in a business and the cash being received from that investment.

Collateral

An asset pledged as security for repayment of a loan.

Default

Failure to fulfill the obligations agreed upon in a loan agreement.

Bank loan

A common form of debt financing provided by banks.

Investment risk

The potential for loss due to market fluctuations or poor investment decisions.

Credit analysis

The process by which a lender evaluates the creditworthiness of a prospective borrower.

Financial distress

A situation in which a company struggles to meet its financial obligations.

Asset liquidation

The process of selling off assets to raise cash, especially when in financial distress.

Debtor

An individual or entity that owes money to another party.

Bonds

Debt securities issued by entities to raise capital, promising to repay the principal along with interest.

Lease

A contractual arrangement where one party grants another party the right to use an asset for a specified time.

Franchise

A form of ownership where one business allows another to operate using its brand and business model.